Sunday, April 22, 2012

Deborah Taylor Tate, the former FCC commissioner and Free State Foundation Distinguished Adjunct Senior Fellow, and actress Geena Davis, co-chairs of the Healthy MEdia Commission, released the Commission's first report, The Elements of Healthy Media, last week at the National Association of Broadcasters convention. The report, along with details about its release, is here.

In releasing the report, Tate and Davis said: "We are proud to come together to release theElements of Healthy Mediato define what ourHealthy MEdia Commissionfinds to be 'positive and healthy' portrayals of women and girls. TheHealthy MEdia Commissionsupports efforts to increase the number of female characters in the media and ensure that female roles, images, and portrayal are authentic, balanced and healthy. We thank our partners and commission members for helping to advance the national conversation about how to ensure we are creating a positive media environment for all our children."

The National Cable and Telecommunications Association and the NAB are supporters of the Healthy MEdia project.

Tuesday, April 17, 2012

The FCC has a disappointing track record when it comes to
exercising its statutory forbearance authority. Indeed, you might say the
Commission has an unfortunate record of forbearing from forbearance.

This is a shame, and the Commission should change its ways. It has an opportunity to at least begin to do so by acting promptly on the pending forbearance petition filed by the United States Telecom Association.

"Forbearance" refers to Congress's direction to
the FCC in the Telecommunications Act of 1996 to "forbear" from
applying any FCC regulation or provision of the Communications Act applicable
to telecom carriers if certain conditions are met. The Commission must forbear
if it determines enforcement of such regulation is not necessary (1) to ensure the
carrier's rates and practices are reasonable and nondiscriminatory; (2) to
protect consumers; and (3) to uphold the public interest.

Congress stated right in the preamble of the 1996 Telecom
Act that it intended for the FCC to "promote competition and reduce
regulation." And, in the principal legislative report accompanying
the 1996 Act, Congress stated its intent "to provide for a
pro-competitive, de-regulatory national policy framework."

Thus, there is no mistaking Congress intended the 1996 Act
to have a deregulatory thrust. With unassailable logic, Congress concluded the
development of more competition and more consumer choice should lead to reduced
regulation.

And there is little doubt forbearance was intended by Congress to be used as a deregulatory
tool. The forbearance provision is unique. I am not aware of any provision like
it in another regulatory statute. And forbearance is mandatory, not
discretionary. The FCC statute says the FCC "shall forbear" if the specified
criteria are met.

As further indication of Congress's deregulatory intent, the
act states that a forbearance petition "shall be deemed granted" if
the FCC does not deny it within one year. In other words, the default for
agency inaction is forbearance from regulation, not continued regulation.

In light of the Commission's disappointing record of failing
to grant forbearance petitions, about a year ago I offered what I characterized
as a "modest proposal" urging Congress to amend the statutory forbearance
provision to include an evidentiary presumption to the effect that, absent
clear and convincing evidence to the contrary, the consumer protection and
public interest criteria have been met. In effect, this presumption would shift
the burden of proof to proponents of retaining regulations. The rationale and
details of the reform proposal are set forth in these three pieces: (1) "A
Modest Proposal for FCC Regulatory Reform," (2) "Rolling
Back Regulation at the FCC," and (3) "Rolling
Back Regulation at the FCC – Part II." (Note that under my proposal
forbearance relief would be available to all entities subject to the FCC's
regulatory jurisdiction, not just to telecommunications carriers.)

I would still like to see Congress revise the forbearance
provision along the lines I have suggested. But, that said, under the terms of
the existing statute, it is wrong for the Commission to continue generally denying
otherwise meritorious forbearance petitions. In several pieces, my colleague,
Seth Cooper, has explained how the Commission has erected inappropriately high barriers
to the grant of forbearance petitions. In important cases, the agency wrongly has
refused to credit wireless as a competitive alternative to landline service and
consciously employed a static market analysis that totally discounts potential
competition and other dynamic market impacts. For one example of Seth's work critiquing
the agency's approach, see his "Forbearance
Follies."

Now comes US Telecom with a forbearance
petition that offers the Commission the opportunity to act consistently
with Congress's intent that forbearance be employed as a deregulatory tool. The
US Telecom petition identifies a number of outdated legacy regulations that
clearly are no longer needed to protect consumers or the public interest in
today's marketplace environment. Indeed, most no longer serve any purpose at
all. And almost all were adopted long ago in a monopolistic analog narrowband
environment that bears little or no resemblance to today's competitive digital
broadband marketplace.

Examples of such legacy regulations identified by US Telecom
include service discontinuance rules, network change approval requirements,
accounting and cost assignment regulations, open network architecture mandates,
various reporting obligations, and the like.

In the language of the old Title II common carrier
regulatory regime that spawned them, these regulations are no longer "used
or useful." Like facilities deemed no longer "used or useful," which
in the days of old were excised from the rate base, the now no longer
"used or useful" legacy regulations should be excised from the FCC's
rule books.

There is a fairly broad, but not unanimous, consensus among
commenters that many of the regulations identified by US Telecom should be jettisoned.
Truth be told, the relief sought in the US Telecom petition is, for the most
part, indisputably modest.

The US Telecom forbearance petition presents the FCC with
the opportunity to demonstrate a seriousness of purpose, heretofore largely lacking,
concerning Chairman Genachowski's pledge to eliminate unnecessary, outdated regulations
that impose costs that exceed their benefits. The FCC should avail itself of
the opportunity presented. And it should do so in a timely fashion.

Looking ahead in December 2000 to the then already rapidly
emerging Internet age, former FCC Chairman Michael Powell, in his landmark
address, "The
Great Digital Broadband Migration," put the matter especially well:

"Our bureaucratic process is too slow to respond to the
challenges of Internet time. One way to do so is to clear away the regulatory
underbrush to bring greater certainty and regulatory simplicity to the
market."

Saturday, April 14, 2012

As described in the April 9 Wall Street Journal article "Carriers Band to Fight Cellphone Theft," the wireless industry has committed to establishing a central database of stolen cellphones. According to the WSJ article:

Wireless phones that have been reported stolen to the carrier will be listed in the database using unique serial numbers associated with mobile gadgets. The carriers will block listed phones from accessing carrier networks for voice and data service.

Carriers will roll out their own individual databases within six months. The individual databases will be integrated and centralized over the 12 months thereafter. Smaller, regional wireless carriers are expected to join the database over two years, according to a person familiar with the plan. As part of the agreement, wireless carriers will also roll out initiatives to encourage mobile-phone users to set up passwords on their devices to deter theft.

The wireless industry's initiative was taken at the promptings of the FCC and other government officials. FCC Chairman Julius Genachowski's remarks provide some additional details. The FCC has also released a Consumer Tip Sheet on how to protect one's self against theft and what to do if one's device has been stolen.

With the rapid growth of feature-rich smartphones, cellphone theft has sharply increased. The wireless industry's initiative is a positive step toward curbing this criminal activity. The FCC and other government officials should be commended for deferring to the wireless industry's lead in address cell phone theft rather than directly imposing regulation. While existing criminal laws against theft are indispensable, wireless providers are in the best position to address matters of technical design and operation that could help inhibit future cellphone theft. As I blogged about in August 2011, the general lesson for wireless policymaking should be to "Address Problems with Wireless Applications, Not Regulations."

In my October 2011 blog post, "New Wireless Industry Alert Standards Stave Off FCC "Bill Shock" Regulation," I raised concerns about how "voluntary" one should regard the wireless industry self-policing regarding overage charges given the FCC leveraging of its consumer protection regulatory power to coax industry action. Fortunately, the FCC's approach to cellphone theft appears to avoid heavy-handedness in prompting the wireless industry to take action. As FSF President Randolph May sized things up in CommDaily on April 11:

I would be troubled if what occurred was the government called together the wireless operators and said, 'These are the four things you must do — or else,'… I don't think that is what occurred here. Also, keep in mind in this instance industry and government are cooperating to take steps to combat criminal activity…We need to re- main alert that the FCC doesn't resort to a modus operandi of 'or else' regulation under the guise of 'voluntary' agreements.

Friday, April 13, 2012

On March 30, I published a blog entitled "A
Truly Free Market TV Marketplace." The piece essentially made two fundamental
points in response to a letter
from the American Conservative Union asserting that the current retransmission
regime represents a "functioning market" for bargaining over the
rights for carriage of video programming.

First, I said:"[I]n light of all the various legacy
laws and regulations that together overlay the video marketplace – must carry,
network non-duplication and syndicated exclusivity, compulsory licensing, and
others -- the retransmission regime operates in the overall context of an
'unfree' market."

And the second point I made was this: "Because I know a free market when I see one,
I commend Senator DeMint and Rep. Scalise for introducing the 'Next Generation
Television Marketplace Act.' The bill certainly represents the direction in
which policy needs to go."

I don't want to repeat here, on a Friday afternoon no less,
all the substance of the three pieces. If you haven't read them, and if you are interested in the debate about the current
retransmission consent regime and the issues surrounding the "Next Generation
Television Marketplace Act" bill introduced by Sen. DeMint and Rep.
Scalise, you should read the pieces as background for what follows.

Here I want to respond to Ryan's post by making just a few
points. They show that, in reality, he essentially agrees with much of what I
say (and Adam Thierer as well.)

Before addressing the substantive points, it would be an
exhibition of false modesty if I didn't acknowledge that I appreciate Ryan
calling my piece "superb" and calling me "venerable." And,
best of all, a "free market policy icon." Thanks, Ryan, for the kind
words.

So, on to the two essential points.

Ryan
states that he wholeheartedly agrees with me "that ACU’s characterization
of the current regime as a 'functioning market' is inaccurate." This
is a very fundamental point to acknowledge in any discussion of the current
retransmission regime.

And he agrees with me that "[i]t’s high time for Congress to liberalize the
television marketplace to bring it into the 21st century. Sen. DeMint and Rep.
Scalise’s bill would, if enacted, mark a major step toward a freer video
market." I appreciate acknowledgement of this point as well. Recall I
concluded my blog by stating the DeMint-Scalise bill "represents the
direction in which policy needs to go." I didn't say the bill was perfect
in every respect. Few bills are, at least as introduced.

At
bottom, though, Ryan concludes that the bill "could be improved by leaving
retransmission consent intact." In between his acknowledgment that the
current retransmission consent regime is not a "functioning market"
and his acknowledgement that the DeMint-Scalise bill constitutes a "major
step" forward, he goes through a lengthy and useful exposition of the
major regulatory overlays in today's video marketplace.

The sheer length of the exposition pretty much proves the
point concerning the extent to which the current video marketplace is burdened
with a real mish-mash of protectionist-inspired legacy regulation which is
ill-suited for today's competitive video marketplace. Ryan himself seems to
agree that the must carry, network non-duplication, and syndicated exclusivity
regulations which confer upon broadcasters certain statutory protectionist privileges
should be repealed. And I think he would say the same with respect to the protectionist
compulsory license benefitting cable operators.

Out of the current regime, the only regulation that Ryan
suggests possibly should remain on the books is retransmission consent, albeit
in an altered form so that the FCC's role in supervision and enforcement is
eliminated in favor of a judicial private right of action. He recognizes that,
for the vast majority of video programming, it is not necessary to preserve
retransmission consent in order to ensure program owners are compensated, by
virtue of a private bargaining process, by pay-TV providers. Pay-TV providers
would have to negotiate for the right to carry copyrighted programming with the
rights holders, whether they are local broadcasters, national or regional networks,
syndicators, or whomever.

In the end, when you cut through it all, Ryan is concerned
that if the DeMint-Scalise bill were adopted as is, local broadcasters
"would hold far fewer cards, losing the regulations that benefit
them." He acknowledges that the "disintermediation of broadcasters
might benefit consumers, especially if it translates into lower fees (and,
hence, more content choices and/or lower television bills.") This is no
small acknowledgement.

But Ryan worries that deregulation possibly may have a
"dark side." Without a statutory retransmission consent requirement
in place, pay-TV operators may be able to free ride on whatever
"incremental value" local broadcasters provide through certain signal
enhancements such as display tickers ("crawlers") with sports scores,
school closings, election results, and the like. Ryan focuses on this possible
"incremental value" of local broadcasters' signals because he acknowledges
that almost all their programming is, in fact, copyrighted. Thus, the vast
majority of local broadcasters' programming would be subject to private
bargaining between the rights holders and pay-TV providers before it could be
carried by pay-TV providers.

Ryan acknowledges that the economic value of the local
broadcasters' signal enhancements beyond copyrighted programming (and whatever else
is left that is not subject to "fair use") is unknown. He suggests
that if the signal enhancements have any incremental economic value at all, pay-TV
operators' carriage of such signals without negotiated compensation offends the
long-standing common law equitable principle of unjust enrichment, which holds
that a person who is unjustly enriched at the expense of another is entitled to
restitution.

Now the whole notion that local broadcasters are entitled to
compensation for the mere retransmission of their local signals is somewhat questionable
in any event, because the signals can be picked up for free by anyone within
reception range. Ryan acknowledges this was the law prior to 1992 when Congress
created the current must-carry/retransmission statutory regime. I think this is
an important point.

But putting this point aside for the moment, my sense is
that it likely would be preferable to have in place the deregulated marketplace
envisioned by the DeMint-Scalise bill than to retain, as the last standing
relic of the current regime, a statutory retransmission consent requirement. If there is any justification for compensation for mere retransmission at all, which I don't concede, perhaps it would be preferable to leave the matter of compensation for a pay-TV operator's
carriage of a local signal to the courts under the common law theories of
unjust enrichment. I doubt if the "incremental value" derived from
crawlers and such would amount to much enrichment in the real world
marketplace.

Ryan's contribution to the debate is welcome. To my mind,
his acknowledgement that the current retransmission consent regime does not
constitute a functioning market and his acknowledgement that the DeMint-Scalise
bill represents a major step forward are both significant and important. As I
head into the weekend, I am happy to emphasize those key elements of agreement,
rather than exaggerate the differences that exist.

Wednesday, April 11, 2012

In October I blogged about the U.S. Court of Appeals for the 9th Circuit's ruling in Brantley v. NBC Universal, upholding the case's dismissal. The 9th Circuit panel later withdrew its opinion. But on March 30, the 9th Circuit issued a new opinion in Brantley, again affirming dismissal of the class action's Sherman Act antitrust claims.

My October blog post gives further background on the case. Here are a few relevant excerpts from the 9th Circuit's opinion on reconsideration:

First, it is clear that the complaint does not allege the types of injuries to competition that are typically alleged to flow from tying arrangements. The complaint does not allege that Programmers' practice of selling "must-have" and low-demand channels in packages excludes other sellers of low-demand channels from the market, or that this practice raises barriers to entry into the programming market. Nor do the plaintiffs allege that the tying arrangement here causes consumers to forego the purchase of substitutes for the tied product…Nothing in the complaint indicates that the arrangement between the Programmers and Distributors forces Distributors or consumers to forego the purchase of alternative low-demand channels…Indeed, Plaintiffs disavow any intent to allege that the practices engaged in by Programmers and Distributors foreclosed rivals from entering or participating in the upstream or downstream markets…Nor does the complaint allege that the tying arrangements pose a threat to competition because they facilitate horizontal collusion...

Businesses may choose the manner in which they do business absent an injury to competition…Therefore, the mere allegations that Programmers have chosen to limit the ability of Distributors to offer Programmers' channels for sale individually does not state a cognizable injury to competition...

Here, Plaintiffs have not alleged that the contracts between Programmers and Distributors forced either Distributors or consumers to forego the purchase of other low-demand channels (a result analogous to the competitive injury in Loew's), but only that consumers could not purchase programs a la carte and they did not want all of the channels they were required to buy from Distributors. "[C]ompelling the purchase of unwanted products" is not itself an injury to competition...

But the plaintiffs here have not alleged in their complaint how competition (rather than consumers) is injured by the widespread practice of packaging low- and high-demand channels. The complaint did not allege that Programmers' sale of cable channels in packages has any effect on other programmers' efforts to produce competitive programming channels or on Distributors' competition as to cost and quality of service. Nor is there any allegation that any programmer's decision to offer its channels only in packages constrained other programmers from offering their channels individually if that practice was competitively advantageous. In sum, the complaint does not include any allegation of injury to competition, as opposed to injuries to the plaintiffs...

Indeed, because Plaintiffs' complaint alleges that the restraints at issue in this case were imposed by Programmers, not Distributors, Leegin suggests that any competitive threat is diminished...

If my earlier blog post spoke to soon about the demise of cable a la carte regulation-by-litigation, the chances of Brantley being resuscitated through a contrary ruling by the 9th Circuit en banc or by the U.S. Supreme Court are extremely remote.

Tuesday, April 10, 2012

On April 9, theFCC's Media Bureau released an ordergranting the City of Boston's petition to re-regulate cable rates. The Media Bureau ruled that its 2001 order granting Comcast relief from cable rate regulation was premised on prospective build-out plans by RCN that a decade later have not come to pass. This despite the fact that RCN covers about one-third of the territory in question, and that the FCC has in prior orders found effective competition to exist when a competitor's overlap with an incumbent cable operator is as little as 18%. But the Media Bureau ruled that Comcast also has the ability to file a petition seeking relief from rate regulation on the grounds that it faces "effective competition" in the City of Boston from two direct broadcast satellite (DBS) providers as well as from RCN.

The FCC's cable rate regulation apparatus dates back to the 1992 Cable Act. Under Section 623, the FCC has the power to set standards for and oversee local regulation of rates for "basic tier" service on cable systems. And under Section 76.906 of the FCC's rules, "[i]n the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition."

But the FCC's rules for imposing cable rate regulations are premised on early 1990s ideas about cable operators' so-called "bottleneck." Those premises do not correspond to today's reality. As we'vewrittenaboutpreviously, consumers now enjoy vibrant video competition, with choices including two nationwide DBS providers, telco entrants in the video market, and myriad online video delivery options. DBS now has one-third of the video subscriber market. These rapid market changes have rendered Section 76.906's presumption against effective competition completely unjustifiable. And those same developments in the video market make cable rate regulation nothing short of ridiculous.

Presumably, it will take an act of Congress to eliminate local cable rate regulating authority and the FCC's corresponding regulatory obligations. But the FCC still has options to make its rules a better match with reality.

Section 623(b)(2) provides that the FCC shall periodically revise its cable rate regulations and in so doing "shall seek to reduce the administrative burdens on subscribers, cable operators, franchising authorities, and the Commission." The FCC could certainly consider rule-changes that would better streamline rate regulation and relief petitions so that cable operators like Comcast don't have to jump through so many hoops in order to receive proper treatment. More importantly, abundant nationwide competition should lead the FCC to reverse Section 76.906's presumption to recognize "effective competition" in the video market unless would-be rate regulating local franchising authorities can demonstrate that a lack of competition exists.

Monday, April 09, 2012

Regarding President Obama's remarks concerning the pending Obamacare decision in the Supreme Court, I was pleased to see that American Bar Association President Bill Robinson issued a statement to the effect:

"President Barack Obama’s remarks on Monday speculating about the Supreme Court’s potential decision in the health care legislation appeal are troubling. Particularly worrisome was his suggestion that the court’s decision in this case could serve as a 'good example' of what some commentators have cited as 'judicial activism or a lack of judicial restraint' by an 'unelected group of people.'"

On judicial independence, I also like this statement form Justice Story:

"The truth is, that,
even with the most secure tenure of office, during good behavior, the danger is
not, that the judges will be too firm in resisting public opinion, and in
defense of private rights or public liberties; but, that they will be ready to
yield themselves to the passions, and politics, and prejudices of the day."

Like its predecessors (one of which I blogged about previously), this report continues to chronicle the accelerated rate of federal rulemaking:

During 2011, the Obama Administration completed a total of 3,611 rulemaking proceedings, according to the Federal Rules Database maintained by the Government Accountability Office (GAO), of which 79 were classified as "major," meaning that each had an expected economic impact of at least $100 million per year. Of those, 32 increased regulatory burdens (defined as imposing new limits or mandates on private-sector activity). Just five major actions decreased regulatory burdens…Regulations adopted in 2011 cost Americans some $10 billion in new annual costs, according to estimates by the regulatory agencies.

But Gattuso and Katz go on to explain why "[t]he actual cost of these new regulations is almost certainly higher than the totals reported here." And even more federal regulations are in the works for 2012:

The most recent Unified Agenda (also known as the Semiannual Regulatory Agenda)—a bi-annual compendium of planned regulatory actions as reported by agencies lists 2,576 rules (proposed and final) in the pipeline. The largest proportion—505 rulemakings—is from the Treasury Department, the SEC, and the Commodity Futures Trading Commission—all tasked with issuing hundreds of rules under the massive Dodd–Frank statute. The Environmental Protection Agency is responsible for 174 others, while 133 are from the Department of Health and Human Services, reflecting, in part, the regulatory requirements of Obamacare.

Of the 2,576 pending rulemakings in the fall 2011 agenda, 133 are classified as “economically significant.” With each of these expected to cost at least $100 million annually, they represent a total additional burden of at least $13.3 billion every year.

Gattuso and Katz also challenge effectiveness of the Administration's agency-by-agency regulatory review initiative to reduce outdated and costly mandates:

The Administration claimed that its reforms would, if implemented, reduce regulatory costs by $10 billion per year. But little or none of this reduction has materialized. Of the four major actions in 2011 that reduced regulatory burdens, none were the product of the regulatory review initiative.

The authors then offer some steps for Congress to take in stemming the tide of new federal regulations. Like its predecessors, this report offers a sobering assessment of the persistent growth of costly government mandates. Gattuso and Katz's critique of the Administration's regulatory review process is certainly worth further reflection.